On October 25, the U.S. Department of Health and Human Services Office of Inspector General (OIG) published Advisory Opinion 23-08, in which it refused to approve a proposal by a manufacturer and distributor of hearing solutions to provide a free compatible hearing aid to certain patients who would receive a cochlear implant it manufactures. OIG analyzed the proposed arrangement under both the federal Anti-Kickback Statute (AKS) and Beneficiary Inducements Civil Monetary Penalties (CMP) law.

Despite the fact that the patients might benefit from using the hearing aid, OIG’s refusal to approve the proposed arrangement is relatively unsurprising given its long-standing concerns regarding the provision of free items or services to federal healthcare program beneficiaries. This opinion reminds the healthcare industry to not be swayed by the potentially beneficial characteristics of an arrangement when it also has negative characteristics.

The Proposed Arrangement

The requestor is a company that manufactures and distributes implantable hearing solutions, including cochlear implants and associated external sound processors. The requestor is also a Medicare-enrolled durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier for the limited purpose of furnishing repair services and replacements for the external sound processors. The requester typically sells the cochlear implant device to hospitals and ambulatory surgery centers (ASCs). The requestor certified that its cochlear implants are reimbursable by federal and state healthcare programs, including Medicare, Medicaid, and Medicaid managed care plans. The requestor also certified that its cochlear implants do not rely on the use of a hearing aid to function properly and are not more clinically appropriate than similar devices from other manufacturers.

Under the proposed arrangement, requestor would offer eligible candidates a bimodal hearing bundle that would consist of a cochlear implant and sound processor along with a free, compatible hearing aid. To qualify for the free hearing aid, the patient would have to meet the cochlear implant requirements under Medicare and have moderate-to-severe hearing loss in the ear opposite of the implanted device. The hospital or ASC would purchase the cochlear implant device from requestor, and the requestor would provide the hearing aid for free. The requestor certified that it would condition receipt of the free hearing aid upon purchase of the cochlear implant device. It acknowledged that the patients and providers at the hospitals and ASCs would have knowledge of the arrangement, including the provision of free hearing aids.

The requestor proposed several safeguards to try to prevent fraud and abuse risks under the proposed arrangement, including:

• Requiring the hospitals and ASCs purchasing the cochlear implant device to certify that they would not bill patients or federal healthcare programs for the hearing aid.
• Advising patients and audiologists in writing that they may not claim insurance reimbursement for the hearing aid and that audiologists may only charge their usual and customary fee for fitting it.
• Establishing financial need criteria to provide the hearing aid only to those patients whose household incomes are at or below 300% of the federal poverty level or not imposing financial need criteria at all.

AKS Analysis

OIG first analyzed the proposed arrangement under the federal AKS, finding that the cost of the hearing aids prevented the arrangement from protection under the safe harbor for patient engagement and support to improve quality, health outcome, and efficiency. OIG noted that the anticipated cost of the hearing aid would range from $1,180 to $2,240, which far exceeded the safe harbor’s monetary cap of $570. Citing its 2002 Special Advisory Bulletin on offering gifts and other inducements to beneficiaries, OIG posited that the provision of free hearing aids could raise other long-standing concerns, such as patient steering, unfair competition, improper utilization, and quality and cost issues.

OIG noted that the offer of a free hearing aid would encourage eligible patients to choose requestor’s cochlear implant bundle over a competitor’s device or a more clinically appropriate item. OIG also opined that, in the event more than one clinically appropriate option exists, the provision of a free hearing aid could result in providers encouraging patients to choose requestor’s device. The proposed arrangement would also limit competition for current and potential competitors in the hearing loss market in OIG’s view because it gives an edge to large providers and businesses with greater financial resources.

Beneficiary Inducements CMP

OIG then analyzed the proposed arrangement under the Beneficiary Inducements CMP, noting that requestor’s offer of a free hearing aid could influence beneficiaries located in the states where requestor bills Medicaid or Medicaid managed care plans for the device to choose requestor’s cochlear implant bundle, which could result in payment from federal and state healthcare programs. OIG then ruled out the applicability of the promotes access to care exception to the CMP, finding that the hearing aid would not improve a beneficiary’s ability to obtain items or services payable by Medicare or Medicaid because it is not required for the cochlear implant device to work properly. OIG further ruled out the financial need-based exception because requestor would condition the free hearing aid on the purchase of the device, and the exception is only available for free or less than fair market value items that are not tied to the provision of other reimbursable items or services.

Key Takeaways

At first blush, the proposed arrangement appears to have some altruistic appeal, particularly for the individual patients suffering from significant hearing loss. Traditional Medicare does not cover hearing aids, so the arrangement could have helped patients with significant hearing loss to hear better. The arrangement is particularly appealing when tied with financial need criteria as the arrangement would have helped financially needy patients with significant hearing loss who might not otherwise have access to the hearing aid.

However, the OIG looked beyond these altruistic benefits and focused on the potentially detrimental effects of tying the provision of a free hearing aid to the use of a particular manufacturer’s cochlear implant. In particular, the OIG highlights “harms” such as “steering, unfair competition, improper utilization, and quality and cost concerns.” Advisory Opinion 23-08 offers a good reminder of the need to look at arrangements holistically and not just focus on one beneficial aspect of an arrangement, as that aspect may be counterbalanced by other negative aspects.